Co-authored by: Matthew Korenoski, Esquire
On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule1 banning most non-compete covenants contained in employment agreements. By issuing this rule, the FTC concluded that post-employment restrictions precluding competition violate the Federal Trade Commission Act, the statutory framework under which the FTC exercises its authority. Notably, the rule does not affect the enforceability of non-solicitation and confidentiality agreements that employers may use to protect their rights. The rule will become effective 120 days after if its forthcoming publication in the Federal Register.
The new FTC rule will make the vast majority of existing non-compete agreements unenforceable. A limited exception, however, exists for “senior executives,” defined as those workers earning more than $151,164 annually and who are in “policy-making positions.” While existing non-compete clauses for senior executives may remain in effect, employers are banned from entering into any new non-compete agreements with such employees.
The new rule also places an affirmative duty on employers that currently have non-compete agreements with their employees. Prior to the rule’s effective date, employers must provide notice to their affected workers that they will not be enforcing the non-compete covenants against their workers. To aid employers in complying with the foregoing requirement, the FTC has provided model language in the new rule, which employers may use to communicate to workers.
Our firm expects that significant litigation will result from the FTC’s issuance of this new rule. In fact, the United States Chamber of Commerce has already initiated litigation against the FTC alleging that, among other things, the FTC has exceeded its administrative authority in issuing the rule. Although it remains unclear what will result from the litigation, what is clear is that employers must be mindful of how they handle post-employment covenants with their employees moving forward.
Brian Boreman heads the firm’ Employment Law practice and is the co-chair of the Litigation department. Matt Korenoski is a member of the firm’s Litigation and Municipal departments. If you have questions about the new FTC rule, please contact Brian (bboreman@utbf.com) or Matt (mkorenoski@utbf.com) to schedule a consultation.
1 An FTC press release announcing this new rule is accessible at: https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes.
The actual text of the new rule is accessible at: 16 C.F.R. Part 910, RIN 3084-AB74, “Non-Compete Clause Rule,” April 23, 2024, https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf.
